Successful traders

Financial markets are full of surprises, letting some get enormously rich
while others (who are in majority unfortunately) lose all their capitals.
But being patient and striving to perfect their skills many of those who
lost in the very beginning still have their chance to become lucky
millionaires someday. On the other hand those who got rich in the beginning
thus becoming all too confident and stubbornly righteous may someday turn
into complete failures complaining about the injustice of financial markets.
The stories of those failures are dull and monotonous and you can read them
on any forum dedicated to trading, while the stories of those who succeeded
and falling from the top climbed their again without losing their confidence
are inspiring. Earning a lot of money dealing in volatility arbitrage is not
rocket science. To keep one’s earnings augmenting the capital is a more
tricky business. Many great traders and financiers became famous only after
they managed to find their way in trading after a series of failures.

Jesse Livermore is an example of such trader. He was a genius of trading who
made millions only to lose them and to make them again. The press nicknamed
him the Great Bear of Wall Street as his trading had its impact on the
market, while the lad even had no secondary education! His trading career
began at the age of 14, when a son of a simple farmer mastered a three-year
course of math just in a year. Having done so he decided to look for any
other trade except farming and left his home. His initial capital amounted
to $5 and the clothes he had on. He ran off to come to Boston. The
stagecoach he rode stopped in front of a bookmaker’s office. This
coincidence gave birth to a great career in trading. The year was 1891 and
the bookmaker’s office hired him to write down on the board the quotes
cabled from the stock exchange. The office profited from the bets for price
changes. The office gained from the losses of the betters. Having a
mathematical mind and good memory Jesse noticed the repeating figures and
started to record them. Grasping certain regularity in the repetitions Jesse
understood that he can forecast changes in the figures sometimes. His first
winning bet amounted to $3. Improving his skills he soon managed to become
more accurate in his forecasts, achieving great excellence. His abilities
made his colleagues call him Boy Plunger and Wonder Boy. Having earned his
first capital he repaid $5 to his mother adding $300 for her help in his
escape. Soon he became popular all over the city and in a month his bets
became banned in every betting office in the city, as he almost never lost
in betting. This was unbearable, as bookmakers make their revenue from
losing betters. Betting on shares Jesse managed to improve his mathematical
skills and to develop his own method of forecasting which was based on
technical analysis. As Boston grew too small for him, Jesse went to New York
to earn more money on real stock exchange.

He came to New York having $ 2000 in his pocket. He became a stock trader
having no idea of real stock trading. With no skills in long-term
forecasting he managed to earn his first $ 50 000 by 1906 only to lose the
amount for trading on a stock exchange is very different from betting with
bookmakers. Ill luck did not break him down. He understood his mistakes and
took measures to prepare himself for the next try. He returned to his first
employer and started studying new analysis and forecasting methods to
discover the news analysis. His inborn abilities, good judgment and
persistence help him develop a new strategy within a very short time. He
turned back to trading during that same year to recover his losses and to
earn much more. His success did not go unnoticed on the stock exchange where
he was nicknamed a “Millionaire for a day”.

It did not take much time for the nickname to be justified. Jesse preferred
bear-style trading often running down the prices for many assets. In 1907
his professional trading operations caused a crisis on the stock exchange
when his bear-style trading made the whole US stock market collapse. The
owners of the New York Stock Exchange even had to ask him to suspend his
trading operations in order for the stock market to recover. The collapse of
the national stock market made Jesse a real millionaire. During the twenties
he was the most influential and wealthy trader with an office of his own
staffed with six clerks writing the quotes down for him on a large board in
absolute silence. He began living on a grand scale, buying expensive cars
and yachts and making expensive gifts to his wife and mistresses. He also
became a celebrity with te press. He lost his fortune four times and each
time he earned even more, getting back triumphantly and repaying all his
debts and losses. His career peaked in 1929 when he made a tremendous
fortune at the start of the Great Depression by predicting market
disruption. In view of this he was declared to be the principal party guilty
of the crisis. It was the year when many traders and brokers committed
suicide because they went broke, while Jesse could live as if nothing
happened.

In the beginning of the thirties Jesse’s career came to an end. He put his
entire capital at stake and lost. This time he failed to recover and being
prone to depression he locked himself in a hotel room and committed suicide.
Having outstanding analytical skills, Jesse Livermore was a great trader,
but his risky temperament and ineffective capital management took him off
the top more than often. Should he spend a fraction of his analytical skills
to control the risks, he could hold Wall Street at bay much longer by his
bear-style trading.

Charles Merrill was a quite different type of a successful financier. He
wanted to earn money, but he also wanted to open stock markets to anybody
who wished to trade. Despite his extraordinary abilities Charles Merrill
sometimes felt the need for a piece of advice.

Once he confessed to his doctor that he feels himself like a madman trying
to convince people in the coming market disruption, as nobody believes him.
All the people see is the growing market and they think it will grow for
long. The doctor reassured him by saying that if he thinks himself mad, then
the doctor is madder still for he did as Charles told him to do, i.e. he
sold all his shares.

The conversation took place in the end of 1928 in an office of a New York
psychiatrist who was a customer of Merrill Lynch Investment Company. The
psychiatrist’s patient was none other than Charles Merrill, one of the
co-owners of the Company, a successful stock trader and financier. He began
to doubt his mental health after he became almost the only one who failed to
share the excitement about the rapid economic upturn in the USA. At the
start of that year he advised his customers and friends to sell the shares
at their then current overestimated price. The unprecedented growth of the
market caused by the traders going bull was too risky and prone to abrupt
disruption. The majority of his customers failed to follow the advice, so he
made another attempt to warn his countrymen of the coming danger by making
recourse to the words of President Coolidge, a greater authority for the
Americans. He offered a retiring President to become a partner to the
Company should the President warn the Americans by a broad statement. But
the President refused the offer, accusing Merrill of being unreasonably
pessimistic. All this made Charles Merrill turn to his psychiatrist.

Reassured by the doctor Merrill stopped his attempts to warn the investors
of the future collapse, hastening to sell the stock he owned and leaving
only the chain stores and some other companies in his portfolio. Having
safely survived the market crash in October 1929 Charles Merrill retired
temporarily as the onset of the Great Depression made the stock market
practically inoperable. Selling his stock in the right time he had enough
means to survive the Depression safely. As his company owned Safeway Stores
which was extended and due to Merrill’s talents became the top third
national retailer during the Great Depression Charles Merrill returned to
the stock exchange triumphantly after the prolonged crisis was over.

Young Charlie helped his father, a rural doctor and the owner of a drugstore
to sell drugs. He was tasked with preparing and selling milkshakes. Soon his
father noticed the growing popularity of his son’s produce. It turned out
that the secret was quite simple, as Charlie added spirit to his milkshakes.
Charles Morton Merrill, Charlie’s father was a wise man and instead of
punishing his son he made use of his recipe by selling “spirited” milkshakes
at a higher price. Having noticed a talent in his son Merrill Senior sent
him to college. Due to the lack of money the Merrill family moved around a
lot. This resulted in Charlie’s changing many schools and seeing many
different people, gaining a lot of experience in life. Back in his native
town, Charles graduates from the college and enters the law school of the
Michigan University. As Charles lacked the money to pay for his education he
failed to get it in full. But during his term at the University he managed
to engage a coed whose father owned Patchogue-Plymouth Mills, a small
textile facility in New York. Soon he becomes an employee of his future
father-in-law. The latter employed the potential son-in-law as a courier,
but as soon as Charles began working there came the crisis of 19007, and the
company went almost broke. They needed money to save the company, but credit
was hardly available at that time. To avoid possible humiliation and refusal
the company owner decided to assign the task of getting credit money to
Charles. Charles turned out to be a good negotiator, as his experience in
socializing gained during frequent relocations of his family served a good
service to him. He succeeded not only in meeting the President of the
National Copper Bank, but in getting three hundred thousand dollars on
credit. Charles’ success was a complete surprise for his future
father-in-law, who gave him a promotion to recognize his achievement. Two
years later the likely son-in-law became so reputable that the owner of the
textile company viewed him as a likely partner, but Charles terminated his
engagement with the daughter of the company owner and left to work in Wall
Street.

After moving to New York Charles met Edmund Lynch with whom he shared a room
at YMCA hostel. At that time Edmund busied himself selling soda water
fountains. They became close quickly due to shared dissatisfaction with
their routine jobs and low incomes. The young men started discussing plans
for possible joint future. While still working at the textile facility
Charles got interested in the stock market which was at its prime at the
time. On seeing the amount in circulation on the stock exchange Charles
began to study the market more closely. It was the time when no special
permissions were required to become a broker therefore Charles learns the
trade very quickly only to leave the company and get employed as a broker
with George H. Burr & Company.

In two years he becomes a successful professional ready to become a head of
the company’s bonds department. The only thing he was displeased with lied
in the fact that the company remained indifferent to the success of its
customers. The company made its earnings from commission fees and wanted its
customers to have as many transactions as possible regardless of their
outcome. Such situation led Charles to the idea of reforming the company to
improve its performance. He laid his ideas out to the top management of the
company but to no avail – the managers refused to change anything. So
Charles decided to establish a company of his own to implement the ideas in
question.

Charles E. Merrill & Co. was established on January 6, 1914. As broker
companies usually dealt with major investors, it was no easy task for a new
player on the market to find willing customers. But it did not discourage
Charles Merrill. In 1912 while employed by George H. Burr & Company he was
responsible for the IPO of the major retail chain owned by Sebastian Kresge.
The successful IPO brought experience and reputation to the young broker
while letting him look at broking at a different angle. The new look
resulted from the in-depth study of retail chain operations which made
Charles think that retailing can be useful not only in goods trading. It can
also find its way to trading stock through a chain of broker companies.
Market studies and computations revealed to Charles that the total capital
owned by the middle class will exceed the total capital owned by the rich if
attracted to the stock market. The idea got so tight hold of him that he
made it his mission to implement it in practice. To start with, he decided
to succeed and to earn some capital. He used his reputation and connections
he established during his work with Kresge. He busied himself with the
placement of shares of chain companies. As he was short of employees he
invited Edmund Lynch, an old friend of his having extraordinary analytical
skills. So in 1915 his company was renamed to become Merrill, Lynch & Co.

Having received considerable brokerage fees and initial capital from the
placement of J.G. McCrory Co shares, the partners started buying the shares
of minor chain and grocery stores sold cheap. Charles Merrill understood the
potential of chain stores at the time he was engaged in placing the shares
of Kmart on the market, as it is in chain stores that consumers can buy
everything they need without wasting much time. The company’s capital grew
due to the growing prices for the shares of retailers. As the owner of such
shares Charles was able to participate in the management of retailers and he
did everything in his power to improve the efficiency of their operations.
In 1926 his activities resulted in gaining control over Safeway Stores, a
major chain of stores. Merging it with smaller retailers owned by Merrill
Lynch & Co at that time the partners managed to increase the capitalization
of the company, as well as the price of its shares. The Great Depression
started soon, but Charles Merrill and his company had quite a considerable
capital.

During the depression Charles Merrill handed a share of his capital and the
remaining customers of the company over to E.A. Pierce & Co while busying
himself with the management of Safeway Stores. Having considerable means
resulting from the sale of shares and a considerable income from his retail
chain Charlie survived the crisis painlessly and acquired worthy experience
in the retail business. Once the Great Depression was over Charles got back
to his idea of attracting the middle class money onto the stock market. To
avoid starting from scratch he organized a merger of Merrill Lynch with A.
Pierce in 1940 investing his own $2.5 million and getting 56% of the new
company shares. Then he fixed the salary of his employees, making it
independent from the amount of customer fees, and thus allowing the
employees concentrate on studying stock purchase offers intended for
customers, making it a point to achieve positive results. After the Great
Depression ordinary Americans became more indifferent to the stock market
and brokers did their best to attract new customers. But Charles found an
easy way to make himself known to the entire country. To get the result he
decided to emphasize the secrecy and non-transparent nature of business done
by the Wall Street tycoons of the day. Merrill Lynch, E.A.Pierce & Cassatt
was the first company to publish its last year’s profit report. It was also
the first to publish its last year’s losses report. The company finished the
year 1940 with the losses amounting to $308 thousand. It was like a bomb
explosion – all American media covered the event advertising Charles
Merrill’s company for free. Charles turned out to be quite right – feeling
confident about the company customers started turning to it more frequently.
In 1944 the company dealt with 10% of securities traded on NYSE. Without
sticking to the result Charles began an aggressive advertising campaign
aimed at improving the financial literacy of an ordinary citizen, rather
than at the promotion of his brand. Merrill Lynch organized free seminars
for ordinary Americans pioneering a family pair approach that involved the
provision of a babysitter to those listeners who had nobody to leave their
children with. Charles used to say that he needed both members of the family
to be present at the seminar so as not to hear “I need to discuss the issue
with my wife” later. Such advertising bore fruit and by 1950 the company had
106 offices across the country with customers amounting to 104800.

The enterprising financier benefitted from the coming cold war also, as the
purchase of shares owned by national companies was considered a patriotic
act. The chain consisting of 106 “stock supermarkets” started working at top
speed, making Merrill Lynch the most famous investment company in America
and beyond. NYSE’s urge to materialize the idea of democratic capitalism
played a significant role in making the company so famous – Monthly
Investment Plan program was initiated in January 1954. The program allowed
investors to invest in securities a fixed amount ranging from $40 to $999.
During the fifties the number of shareholders in America grew at a rate of
half a million per year.

Charles Merrill became famous not only for his talent and persistence in
earning fabulous wealth, but also for the reforms he initiated on the
America’s stock market, allowing many simple Americans to start investing
and to generate income from the stock market.